Thursday, July 14, 2011

Reader question on rental property deductions

In an article on tax deductions for real estate investors, I wrote:

“If you spend the majority of your time in the real estate business as a real estate professional, your rental losses are not passive. This means that your losses are fully deductible against all income, passive and non-passive.

"Otherwise, your losses are passive and only deductible up to $25,000 against your rentals' income (deduction phases out if your modified adjusted gross income (MAGI) is between $100,000 and $150,000). However, losses of more than $25,000 can be carried over to the following year.”

A reader asked the following question:

"My wife and I are passive investors. My question: When you speak of losses being phased out at certain income levels, are losses in this context a synonym for deductible expenses, or does the term "losses" mean the amount by which rental property expenses exceed rental income? Many thanks, Peter”

And my answer:

“Hi Peter,

This refers to gross income from the rental minus deductible expenses.
Most expenses relating to owning a rental property are deductible. The big exception is repairs vs. improvements, which I discussed in the article.”

Click here if you would like to read the complete article.

Best wishes,


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